COVER STORY: Government push for sell-off of Telstra's infrastructure

by Peter Westmore

News Weekly, October 3, 2009

The Federal Government announcement that it wants the voluntary separation of Telstra's infrastructure from its retail operations will bring to an end many years of recriminations in the telecommunications industry, and inaugurate an era in which the focus is on improved services for users, rather than on profits.

The announcement was part of the Government's plan to set up a company to build and run the next generation national broadband network. Proposals to have this network run by the private sector were abandoned last April.

The "voluntary and co-operative" separation will allow Telstra to sell off its infrastructure. Its shareholders will therefore not lose out, and the sale will not constitute "nationalisation" of the industry.

The most obvious conflict in the present system is between Telstra, as provider of the infrastructure, and its retail competitors in the mobile phone and internet businesses who have long complained that Telstra has imposed excessive fees for access to its mobile phone and copper-wire networks, pushing up prices for all communications and inflating its profits.

Rural and regional

Equally importantly, Telstra has been unco-operative in meeting the universal service obligation (USO), which was supposed to ensure that users in rural and regional Australia had access to services comparable to those supplied to people living in the capital cities, and has pushed shareholder profits ahead of its national interest obligations.

For example, during the Howard Government's term in office, Telstra blamed inadequate funding for the failure to deliver adequate services in rural and regional Australia.

In a submission to the USO Review in 2007, Telstra - then run by the "Three Amigos" from the United States, led by Sol Trujillo - blamed the former government for the failure to provide reliable mobile phone and internet services in rural Australia, claiming that "the true cost of the USO has never been adequately determined or recognised", despite the efforts of the Government to obtain independent advice on the cost of providing these services.

Although Telstra itself owned the copper-wire network and exchanges which provide the foundation of the service, it did not offer its own costing of the USO, but instead insisted that the cost determined by the industry regulator "bears no real relationship to the true cost of USO delivery". (Telstra submission, p.26).

Telstra's take-no-prisoners approach to restricting access to its infrastructure was shown in its attempt to deny access to its infrastructure to Optus, its main competitor, in areas where Optus had its own cable network.

The cable network was established to provide Pay TV services. It can be used for telecommunications, but relies on linking into the Telstra-owned telephone exchanges and copper-wire network.

In announcing what he called "fundamental reforms" to the regulation of telecommunications in Australia, the Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, said that the Federal Government wanted Telstra to voluntarily separate its infrastructure assets, including copper wire, cable, and mobile phone towers, from its retail arms (including telephone sales, service and installation, broadband, Pay TV and directories).

He said Telstra was one of the most vertically-integrated telecommunications companies in the country, and its structure encouraged anti-competitive conduct.

If Telstra decides not to structurally separate, he said the Government would "impose a strong functional separation framework on Telstra" by requiring Telstra to conduct its network operations and wholesale function "at arm's length from the rest of Telstra", to provide equivalent price services to its retail telecommunications competitors.

Further, it will be prevented from acquiring additional spectrum for wireless broadband, the fastest growing section of the market.

The voluntary separation which the Government wants Telstra to adopt could still leave its telecommunications infrastructure in private hands, unless the Government intervenes.

Wasteful duplication

To prevent wasteful duplication, as has already happened with cable TV, fibre-optic communications cables and mobile phone towers, there is a strong case to have the infrastructure provided by a government utility, as existed before the privatisation of Australia's telecommunications industry.

It is clear that this is what Minister Conroy intends to achieve through the company being set up to establish a national broadband network.

The Government clearly wants this company to purchase Telstra's infrastructure, as an integral component of its future telecommunications system, and then make these facilities available to all telecommunications retailers on the basis of equality. The Federal Government will commit up to $43 billion over the next eight years to build and operate the network.